WITH CA MAYUR NAHTA

= 12 MARKS
 BILLS OF EXCHANGE

Question 1 –

The drawer’s signed assent on bill of exchange, to the

order of the drawee is called an acceptance:

Will succeed because Mr.

A: TRUE B: FALSE
False: The drawee’s signed assent on bill of
exchange, to the order of the drawer. This term is
also used to describe a bill of exchange that has
been accepted.
Question 2 - Promise to pay is included in a bill of exchange.

A: TRUE B: FALSE
False: Bill of exchange
contains an order to pay
the required amount and
not a mere promise to
pay.
Question 3 –
Days of rebate are added to the due date to arrive at the
maturity date.

A: TRUE B: FALSE
False: 3 Days of grace
are added to the due date
to arrive at the maturity
date.
Question 4 –
There are always 2 parties to the bills of exchange

A: TRUE B: FALSE
False: There can be more
than 2 parties- namely the
drawer, acceptor and the
payee of the bill
Question 5 –
Foreign bill is drawn in the country and payable outside the
country.

A: TRUE B: FALSE
True: When a bill is
drawn in the country and
is payable outside the
country it is termed as a
foreign bill.
Question 6 –
Promissory note is different from bill of exchange because
the amount is paid by the maker in case of former and by the
acceptor in the later.

A: TRUE B: FALSE
True: In case of the promissory note, it is generally
the maker who makes the payment, but in case of
the bill of exchange, the person accepting the bill
shall be liable to make the payment to the holder of
the bill.
Question 7–
Bills receivable and bills payable books are type of subsidiary
books.

A: TRUE B: FALSE
True: Yes, they are types of subsidiary books
which is alternate to the journals.
Question 8 –
Bills payable account is a nominal account.

A: TRUE B: FALSE
False: The bills payable
account is a personal
account that represents a
liability.
 DEPRECIATION

Question 1 –
Increase in market value of a fixed asset is one of the
reasons for depreciation being charged.

Will succeed because Mr.

A: TRUE B: FALSE
False: It is the decrease in market value as one of
the reasons for depreciation. Increase in market
value may result in Revaluation.
 Question 2 –

Depreciation of an asset begins when it is available for use in the

location & condition necessary for it to be capable of being
operated.

Will succeed because Mr.

A: TRUE B: FALSE
True: It is not necessary that the asset must be used
to be depreciated, thus depreciation may start once
it is brought in the location & condition required to
be used.
Question 3 –
Cost of property, plant and equipment includes purchase
price, refundable taxes & import duties after deducting any
discount or rebate

A: TRUE B: FALSE
False: Non-refundable taxes & duties form part of
the cost.
Question 4 –
Cost of fixed asset should also include cost of opening a
new facility such as inauguration costs.

A: TRUE B: FALSE
False: Inauguration costs shouldn’t be part of
cost.
Question 5 –
Depreciation is charged with a constant amount under
straight line method and charged with a constant percentage
under diminishing balance method.

A: TRUE B: FALSE
True: SLM method results in same amount and
diminishing method involves same rate of
depreciation.
Question 6 –
In case an item of Property, Plant & Equipment is revalued,
whole class of assets to which that asset being revalued
belongs should be revalued.

A: TRUE B: FALSE
True: Revaluation should be done for the whole
class of the asset.
Question 7 –
Akash purchased a machine for ` 12,00,000. Estimated useful life
is 10 years and scrap value is` 1,00,000. Depreciation for the first
year using sum of the years digit method shall be ` 2,00,000.

A: TRUE B: FALSE
True: Sum of years digit method depreciation is
calculated as 10/55 x (12,00,000 – 1,00,000) =
2,00,000
Question 8 –
In case the carrying amount of an asset is decreased due to
revaluation, such decrease should always be recognized in
the Profit and Loss account.

A: TRUE B: FALSE
False: Any decrease in value of asset on account
of revaluation should be first debited to
Revaluation Reserve, if any, and then to Profit &
Loss account.
Question 9 –
Depletion is the allocation of the cost of intangible assets
such as patents and copyrights

A: TRUE B: FALSE
False: Depletion relates to allocation of cost of
natural resources
Question 10 –
If the equipment account has a balance of ` 12,50,000 and the
accumulated depreciation account has a balance of ` 4,00,000, the
written down value of same shall be ` 16,50,000.

A: TRUE B: FALSE
False: WDV = ` 12,50,000 - ` 4,00,000 = `
8,50,000
Question 11 –
Sum of the years digit method is an example of accelerated
method of charging depreciation

A: TRUE B: FALSE
True: Higher depreciation is charged in earlier
years under sum of the years digit method.
Question 12 –
Over the life of an asset subject to depreciation, the
accelerated method will result in less Depreciation Expense
in early years and more depreciation in later years of its life.

A: TRUE B: FALSE
False: It is vice versa as
under diminishing balance
method; higher depreciation
is charged in beginning.
Question 13 –
While depreciating land cost, Straight line method shall give
more depreciation than the written down value.

A: TRUE B: FALSE
False: Land is not depreciated.
Question 14 –
Provision for depreciation account is debited at the time of
recording the depreciation on an asset.

A: TRUE B: FALSE
False: Provision for
Depreciation account is
credited while charging
the depreciation.
Question 15 –
If adequate maintenance expenditure is incurred with relation
to running repairs of an asset, we need not charge any
depreciation

A: TRUE B: FALSE
False: Depreciation is allocation of the cost of
an asset over its useful life. Regular repairs
may be required during its life are expensed
and depreciation has to be charged anyways.
Question 16 –
When a property, plant or equipment is sold then provision for
depreciation account is debited, asset account is credited
and any gain or loss is recorded to profit and loss account.

A: TRUE B: FALSE
True: At the time of sale of an asset, respective
asset account is credited with provision for
depreciation account being debited and any
resulting gain or loss being charged to profit & loss
account.
Question 17 –
While calculating the depreciation as per diminishing balance
method, the salvage value of the asset at the end of its life is
reduced from its cost.

A: TRUE B: FALSE
False: Under diminishing
balance method, salvage
value is not considered
initially as it assumes that
at the end of the asset’s
life the remaining value
shall be its salvage value.
Question 18 –
Any change in the estimated useful life of an asset should be
accounted for as a change in an accounting estimate in
accordance with Accounting Standards.

A: TRUE B: FALSE
True: Any change in useful life of an asset is
accounted for as a change in estimate.
Question 19 –
Whenever any depreciable asset is sold during the year,
depreciation is charged on it for that entire year.

A: TRUE B: FALSE
False: Whenever any depreciable asset is sold
during the year, depreciation is charged on it for
the period it has been used in the sale year.
 SALE OF GOODS ON APPROVAL OR
RETURN BASIS

Question 1 –
The period within which the customer has to reject or
accept is fixed by the buyer.

Will succeed because Mr.

A: TRUE B: FALSE
False: It is the seller who fixes the terms of the
period within which the customer has to get back
with the answer of rejection or accepting the
goods. In some cases, mutual consent is there.
Question 2 –
No entry needs to be passed in the books of the seller, when
the customer rejects the goods (awaiting approval) after the
closing of the books of the seller.

A: TRUE B: FALSE
True: At the end, already the entries pertaining to
the reversal of the sale and the addition to the
closing stock would have already been passed. If
subsequently the customer rejects the goods, no
further entry needs to be passed
 Question 3 –
At the end of the year- those goods on approval basis awaiting
approval from the customer are shown as part of sales in the
books of the seller.

A: TRUE B: FALSE
False: At the end of the accounting period- if there
are goods sold on approval or return basis, without
any information, then the accounting treatment is to
reverse the same from the sales and to add it with
the existing closing stock at cost price.
Question 4 –
The customer retains the goods even after the expiry of the
mentioned term, but this act does not confirm to sale of goods as
there is no express consent given.

A: TRUE B: FALSE
False: As per the Sale of goods Act, when the
goods are retained by the customer after the given
time and no express intimation is given with regard
to rejection- they are deemed sales.
Question 5 –
Goods sold on approval or return basis are not recorded as credit
sales initially when they are sent out in case the business entity
sell goods casually on sale on return basis.

A: TRUE B: FALSE
False: They are recorded as sales irrespective of
whether the customer might accept or reject the
goods at the end of the period given for the
approval in the given case.
 CONSIGNMENT

Question 1 –
Value of the abnormal loss is debited to the
consignment account

Will succeed because Mr.

A: TRUE B: FALSE
False: The abnormal loss is credited to the
consignment account since it is a reduction
in the value of the stock.
Question 2 –
Abnormal loss is created out of uncontrollable situations and
circumstances.

A: TRUE B: FALSE
False: Abnormal loss occurs due to unforeseen
circumstances, but if necessary, steps are taken
they can be controlled, it is only the natural loss
which cannot be controlled since it occurs due to
nature of the product.
Question 3 –
The relationship between the consignor and his
consignee is that of a seller and a buyer

A: TRUE B: FALSE
False: The relationship between the consignor and
the consignee is that of a principal and agent. It is
mere arrangement for sale of goods on behalf of
the consignor.
Question 4 –
The bad debts in case of del credere commission shall be
debited to the Consignment account

A: TRUE B: FALSE
False: If del credere commission is given to the
consignee then, the bad debts are taken into the
accounts of the consignee. It will not appear in
the consignment account.
Question 5 –
Proforma invoice is sent by the consignee to the consignor giving
details about the stock of goods senton consignment and their
cost, invoice price, etc.

A: TRUE B: FALSE
False: Proforma invoice is given by the consignor
to the consignee with regard to the goods sent on
consignment and their price.
Question 6 –
Consignment account is a representative personal
account.

A: TRUE B: FALSE
False: It is a nominal account recording the
expenses on the debit and the income on the credit
side, balance being the profit/ loss on the
consignment account to the trading account.
Question 7 –
There is no entry passed by the consignee in his books for
the remaining stock of goods lying with him.

A: TRUE B: FALSE
True: It is the consignor who has to record the
closing stock of the consigned goods since he is
the owner of the goods. There is no entry passed
in the books of the consignee.
Question 1 –
Shares of a private company are not listed on stock exchange.

A: TRUE B: FALSE
True: Only the shares of public company are listed on
stock exchange. Every listed company is a public
company.
Question 2 –
Husband and wife cannot be partners in the same firm. .

A: TRUE B: FALSE
False: Husband and wife can
be partners in the same firm.
 Question 3 –
A building is considered inventory in a construction business.

A: TRUE B: FALSE
True: For a construction business a building under
construction will be inventory. The building is being built in
the normal course of business and will eventually be sold
as inventory.
 Question 4 –
As per Table F, rate of interest on calls in advance is 10%

A: TRUE B: FALSE
False: As per Table F, rate of
interest on calls in advance is
12%.
 Question 5 –
Debenture holder are the owners of the company.

A: TRUE B: FALSE
False: Debenture holder are the
creditors of the company.
 Question 6 –
Business of a partnership has to be closed if any one of the partners
retires.

A: TRUE B: FALSE
False: Business of a
partnership is not closed if any
one of the partners retires,
remaining partners continue to
carry on the business.
 Question 7 –
Every public company is a listed company.

A: TRUE B: FALSE
False: Listed companies are
those which are listed on the
stock exchange. Shares of
listed companies are open to
general public. Every listed
company is a public company
but every public company is not
a listed company.
 Question 8 –
If a partner does not take part in day to day business activities of the firm
then he is not entitled to any share of profit. .

A: TRUE B: FALSE
False: Every partner need not
take part in the business. Even
if a partner does not take part in
the business he is entitled for
his share of profit.
 Question 9 –
Management has daily information about the quantity and
valuation of closing stock under physical Inventory System.

A: TRUE B: FALSE
False: Under Perpetual
Inventory System management
have daily information of
closing stock.
 Question 10 –
Loss on reissue should exceed the forfeited amount.

A: TRUE B: FALSE
False: Loss on re-issue should
not exceed the forfeited
amount.
 Question 11 –
Perpetual debentures are payable at the time of liquidation of the
company.

A: TRUE B: FALSE
True: Perpetual debentures,
also known as irredeemable
debentures are not repayable
during the life time of the
company.
Question 12 –
At the time of retirement of a partner no special treatment is required for
any reserves appearing in the Balance Sheet.

A: TRUE B: FALSE
False: At the time of retirement
of a partner all the reserves
appearing in the balance sheet
are transferred to all the
partners in their old profit
sharing ratio.
Question 13 –
Bank Reconciliation is the process of reconciling cash column of the cash
book and bank column of the cash book.

A: TRUE B: FALSE
False : Bank Reconciliation
Statement reconciles bank
column of cash book with the
balance in the pass book i.e.
customer account in the
books of bank.
Question 14 –
It is not mandatory to incorporate a company under the companies act.

A: TRUE B: FALSE
False: It is mandatory to
incorporate a company under
the Companies Act. Without
such incorporation, a company
cannot come into existence.
Question 15 –
Interest should be paid @ 6% p.a. on partners’ loan even if it is not
provided in the partnership deed.

A: TRUE B: FALSE
True: In absence of Partnership
deed, Interest at the rate of
6%.p.a is to be allowed on a
partner’s loan to the firm.
Question 16 –
Periodic Inventory System is more suitable for small enterprises.

A: TRUE B: FALSE
True: A periodic inventory
system is suitable to small and
micro enterprises, where
physical counting of inventory is
not a tedious process.
Question 17 –
Forfeited shares are available to the company for the purpose of resale.

A: TRUE B: FALSE
True: Reissue of forfeited
shares is not allotment of
shares but only a sale.
Question 18 –
Registered debentures are transferable by delivery.

A: TRUE B: FALSE
False: Registered debentures
are not easily transferable by
delivery. Bearer debentures are
transferrable by delivery.
Question 19 –
If the firm has taken any joint life policy then it is to be surrendered at the
time of retirement of a partner.

A: TRUE B: FALSE
True: The firm is eligible for the
surrender value on the Joint
Life Policy taken on the
partners at the time of their
retirement.
Question 20 –
Any joint life policy reserve appearing in the Balance Sheet is
credited to all the partners in their old profit sharing ratio.

A: TRUE B: FALSE
True: As per the surrender
policy method, the JLP reserve
is distributed to the partners in
their profit sharing ratio through
capital account.
Question 21 –
Business of partnership comes to an end on death of a partner.

A: TRUE B: FALSE
False: Surviving partners
continue to carry on the
business.
Question 22 –
There are 3 types of differences between cash book and pass book namely
Timing, Transactions & Errors.

A: TRUE B: FALSE
True : These are the three
broad categories.

True : These are the three broad categories.

Question 23 –
Adjusting the cash book for any errors and/or omissions before preparing bank
reconciliation is optional when the reconciliation is done at the end of the financial
year.

A: TRUE B: FALSE
False : Adjusting the cash book
is mandatory when bank
reconciliation is done at the end
of the financial year.
Question 24 –
Death, insolvency or change of members affects the existence of
a company.

A: TRUE B: FALSE
False: Company is a separate
legal entity created by law.
Death, insolvency or change of
member does not affect it’s
existence.
Question 25 –
When closing inventory is overstated, net income for the accounting period
will be understated.

A: TRUE B: FALSE
False: When closing inventory
is overstated, net income for
the accounting period will be
overstated.
Question 26 –
Non-participating preference shareholders enjoy voting rights.

A: TRUE B: FALSE
False: A share on which only a fixed rate of dividend is paid
every year, without any accompanying additional rights in
profits and in the surplus on winding-up, is called 'Non-
participating Preference Shares. Non-participating preference
shareholders do not enjoy voting rights.
Question 27 –
When companies issue their own debentures as collateral security for a loan, the
holder of such debenture is entitled to interest only on the amount of loan and not
on the debentures

A: TRUE B: FALSE
True: In case the company
cannot repay its loan & the
interest thereon on the due
date, the lender becomes
debenture holder & then only
he is entitled to interest on
debentures.
Question 29 –
Debit balance in cash book is same as overdraft as per pass
book.

A: TRUE B: FALSE
False : Debit balance as per
cash book should be
represented by credit or
favourable balance in pass
book.
Question 30 –
Debentures suspense account appears on liability side of balance sheet.

A: TRUE B: FALSE
False: Debentures suspense
account appears on asset side
of balance sheet under non-
current asset.
Question 31 –
Bank charges debited by the bank is an example of timing difference for the
purposes of bank reconciliation.

A: TRUE B: FALSE
False : Bank charges are
example of the transactions that
bank carries out by itself and
the same has not been
recorded in the cashbook until
statement is obtained from the
bank.
Question 32 –
Legal heir of a deceased partner automatically becomes partner in the firm.

A: TRUE B: FALSE
False: Legal heirs of deceased
partners are entitled to dues of
the deceased partner.
Question 33 –
If the shares are fully paid-up by the shareholder, he is subject to no further
liability.

A: TRUE B: FALSE
True: Liability of shareholders is
limited to the extent of the
unpaid share capital. So, if
shares are fully paid-up, he is
subject to no further liability.
Question 34 –
Closing inventory = Opening inventory + Purchases + Direct expenses +
Cost of goods sold.

A: TRUE B: FALSE
False: Closing stock = Cost of
goods sold - (Opening inventory
+ Purchases + Direct
expenses).
Question 35 –
Sweat equity shares are those which are issued to employees & directors
at a discount.

A: TRUE B: FALSE
True: According to Section 53
of the Companies Act, 2013, a
Company cannot issue shares
at a discount except in the case
of issue of sweat equity shares
(issued to employees and
directors).
Question 36 –
If a company incurs loss, then it does not pay interest to the debenture
holders.

A: TRUE B: FALSE
False: Even if the company
incurs loss or earns profit, it has
to pay the interest on
debentures.
Question 37 –
Overcasting of the debit side of the cash book is an example of a difference
that is due to error.

A: TRUE B: FALSE
True : Overcasting is an
example of an error.
Question 38 –
When we start bank reconciliation with a debit balance in cash book, then
cheques issued but not yet presented should be added back to arrive at the
balance as per pass book.

A: TRUE B: FALSE
True : Since the cheques
issued would have been
recorded as payments and
bank balance was credited in
cash book, we need to add it
back as the same is not yet
deducted from our bank
balance.
Question 39 –
On death of a partner, the firm gets surrender value of the joint life policy.

A: TRUE B: FALSE
False: On death of a partner the
firm gets full value of sum
assured of the joint life policy.
Question 40 –
Public limited company has restrictions on transferability of shares.

A: TRUE B: FALSE
False: Shares of public
company are freely
transferable. Transferability of
shares is restricted in a private
limited company.
Question 41 –
Cost of inventories should comprise all cost of purchase.

A: TRUE B: FALSE
False: Cost of inventories
should comprise all cost of
purchase, costs of conversion
and other costs incurred in
bringing the inventories to their
present location and condition.
Question 42 –
Costs of conversion of inventories include costs directly related to the units
of production. They include allocation of fixed overheads only..

A: TRUE B: FALSE
False: Costs of conversion of
inventories include costs
directly related to the units of
production. They also include a
systematic allocation of fixed
and variable overheads as well.
Question 43 –
Abnormal amounts of wasted materials, labour or other production
overheads expenses are included in the costs of inventories.

A: TRUE B: FALSE
False: Abnormal amounts of
wasted materials, labour or
other production overheads
expenses are generally not
included in the costs of
inventories
Question 44 –
A company may issue shares at a discount to the public in general.

A: TRUE B: FALSE
False: According to Section 53
of the Companies Act, 2013, a
Company cannot issue shares
at a discount except in the case
of issue of sweat equity shares
(issued to employees and
directors). Thus any issue of
shares at discount shall be
void.
Question 45 –
At the time of liquidation, debenture holders are paid off after the
shareholders.

A: TRUE B: FALSE
False: At the time of liquidation,
debenture holders are paid off
before shareholders on priority
basis.
Question 46 –
The bank charges charged by the bank should be deducted when bank
reconciliation statement is being prepared starting from a credit balance of pass
book.

A: TRUE B: FALSE
False : Bank charges should be
added when we start with credit
or favourable balance in pass
book as bank would have
debited the charges.
Question 47 –
When the causes of differences between pass book balance and cash book is not
known, then the bank reconciliation statement can be prepared by matching the
two books and identifying any unticked items in both sets.

A: TRUE B: FALSE
True : Since, we don’t know the
causes of difference, matching
the two statements is only
efficient way to identify the
difference.
Question 48 –
Only legal heirs of deceased partner are entitled to amount received from
joint life policy.

A: TRUE B: FALSE
False: All the partners are
entitled to amount received
from joint life policy.
Question 49 –
Schedule I gives proforma of Balance Sheet.

A: TRUE B: FALSE
False: Schedule III Part I
explains proforma of Balance
Sheet.
Question 50 –
Finished goods are normally valued at cost or market price
whichever is higher.

A: TRUE B: FALSE
False: Finished goods are
normally valued at cost or
market price whichever is lower.